50 / 146
34
Data processing costs increased by $710,000, or 26%, in 2015 over 2014, and by $1.154 million, or 74%, in 2014 over
2013. The increase in 2015 is the result of ongoing costs related to the acquisition, as well as an increase in our cost
structure subsequent to the core processing conversion in the first quarter of 2014. The increase in 2014 can be
attributed to incremental ongoing costs stemming from our core banking system conversion and other technology
upgrades, and the acquisition. Deposit services costs also increased by $595,000, or 23%, in 2015 over 2014, and
$182,000, or 8%, in 2014 over 2013. As with data processing costs, much of the increase in deposit costs is the result
of ongoing expenses associated with our software conversion and the acquisition, including $123,000 in amortization
expense for our core deposit intangible, but deposit costs were further impacted by increases in internet banking,
electronic check exchange, and debit card processing costs due to increased activity levels.
Loan services costs are comprised of loan processing costs and net costs associated with foreclosed assets. Loan
processing costs, which include expenses for property appraisals and inspections, loan collections, demand and fore-
closure activities, loan servicing, loan sales, and other miscellaneous lending costs, declined by $222,000, or 20%, in
2015 relative to 2014, but increased by $114,000, or 11%, in 2014 over 2013. The year-to-year fluctuations are due in
large part to $290,000 in non-recurring commissions paid in conjunction with the sale of certain nonperforming loans
in 2014. Foreclosed assets costs are comprised of write-downs taken subsequent to re-appraisals, OREO operating
expense (including property taxes), and losses on the sale of foreclosed assets, net of rental income on OREO properties
and gains on the sale of foreclosed assets. Those costs totaled $153,000 in 2015, but reflect a net expense reversal of
$1.420 million for 2014 due to relatively large gains on the sale of OREO. Net expenses on foreclosed assets were
$1.529 million in 2013. This line item thus reflects an increase of $1.573 million for 2015 over 2014, and a reduction
of $2.949 million for 2014 relative to 2013. As noted, the largest impact on this category came from OREO sales,
which produced a net gain of $259,000 in 2015, relative to a net gain of $2.253 million in 2014 and a net loss of
$223,000 in 2013. OREO write-downs and OREO operating expense were down in 2015 relative to 2014, however,
by $231,000 and $196,000, respectively, and also dropped in 2014 relative to 2013, by $277,000 and $227,000,
respectively. Foreclosed asset expenses have been trending down in recent years as real estate values in our markets
have improved and real estate sales activity has increased, but we do not expect a recurrence of large gains on the sale
of OREO such as those realized in 2014.
The “other operating costs” category includes telecommunications expense, postage, and other miscellaneous costs.
Telecommunications expense increased by $574,000, or 45%, in 2015 over 2014, but was reduced by $330,000, or
20%, in 2014 relative to 2013. The increase in 2015 and the reduction in 2014 were due in part to $155,000 in credits
received in 2014 for prior-period overpayments. The increase for 2015 was also affected by expenses associated with
the SCVB acquisition and our new loan production office, as well as upgraded circuits and certain redundant circuits
that we are working to consolidate. The reduction in 2014 includes the impact of new contract rates and the incorpo-
ration of infrastructure efficiencies. Postage expense increased by $148,000, or 19%, in 2015 over 2014, and by
$62,000, or 9%, in 2014 over 2013. The increase for 2015 is due to an increase in the volume of mailings related to
compliance requirements, monthly statements, and customer education, while the increase in 2014 is primarily the
result of additional mailings to customers in conjunction with our core banking system conversion, the rebranding
initiative, and the acquisition. The “Other” category under other operating costs increased by $84,000, or 12%, in 2015
as a result of higher education and training costs, and was up $34,000, or 5%, in 2014 due primarily to staff travel and
meal costs, which were higher than normal during the conversion and the acquisition.
Legal and accounting costs were up $93,000, or 7%, in 2015 over 2014, but declined $444,000, or 26%, in 2014 relative
to 2013. The increase in 2015 is from higher costs for internal audits, partially offset by reduced legal expense and
lower external audit costs. The drop in 2014 is due primarily to reduced loan review costs and lower lending-related
legal expense incidental to our improvement in credit quality, as well as lower external audit expense.
Acquisition costs include one-time expenses directly attributable to our acquisition of Santa Clara Valley Bank, which
totaled $101,000 in 2015 and $2.070 million in 2014. Those expenses are comprised primarily of financial advisor
fees, legal costs, severance and retention amounts paid to SCVB employees, the write-off of furniture, fixtures and
equipment that were not utilized by the Company, software conversion costs, and termination fees on certain SCVB
contracts for redundant services.
Other professional services costs include FDIC assessments and other regulatory costs, directors’ costs, certain insur-
ance costs, and professional recruiting fees among other things. This category fell by $325,000, or 15%, in 2015, and